Passion vs. Permits

It's one of the oldest saws in the business, but it still cuts: if you want to make a small fortune in wine, start with a large one. Up in Napa, it works because the land commands a mind-boggling premium. Fair enough: Napa is a coveted sandbox, and you have to pay to play. But down in Ramona, where the ink is still wet on the region's designation as an AVA, it's a little more complicated. That is to say, the government is involved. Carolyn Harris, secretary for the Ramona Valley Vineyard Association and one of the major forces behind the push to get Ramona recognized as an AVA, explains the situation — starting with sales and marketing: "Practically speaking, the best way for a small winery to introduce their product is through direct exposure. A small winery is not going to be able to sell their wine on a restaurant list just by name, without any kind of introduction. Once that introduction is made, then the winery's wine club and Internet sales are where the wine gets sold — at retail prices. Five years ago, I would say a third to a half of a small winery's sales depended on direct retail. Today, it's more like three quarters" — especially in a fledgling region. Just seeing "Ramona" on a label isn't going to entice the average consumer, certainly not in the same way that a visit to the vineyards and a stop in the tasting room will do.

That's a problem for the marketing end of things, and it's an even bigger problem for the balance sheet. "Maybe one-third of the retail price can be achieved at wholesale — no more than half. That means that grape growers/winemakers don't recover their costs, let alone make a profit. I think that almost every winemaker [in Ramona] is either keeping his day job or is retired. What we're talking about here is justifying the capital expenditure — the equipment, the tractors, the buildings. If you can cover your costs by selling retail, you can justify to your spouse keeping that land under vineyard."

The California government — at least at the state level — seems to understand the virtue of onsite introduction to the product. "The state license that the wineries carry — the 02 Winegrower License — has as one of its listed liberties retail sales for offsite consumption, and tasting rooms to introduce the product." But: "the state regs defer to county zoning where appropriate. The county is allowed to decide what an ag-zoned parcel can and cannot do. Right now, there are a lot of packing and processing activities that are allowed with ag products" — and in most cases, retail activities as well. "Whether you have eggs or Christmas trees or fruit, farmers are at liberty to sell directly from their property. But since Prohibition, wine as an ag product has been treated separately." And as things stand now in San Diego County, "there's a liberty to plant vineyards on ag-zoned properties in unincorporated areas of the county, and there's also a liberty to have a winery. But if you don't have a major use permit, you're restricted to wholesale distribution." No onsite retail, and no introduction via the tasting room.

So what's the problem? Just get yourself a major use permit and open up shop. Except, recalls Harris, "I remember 10 years ago, when John Schwaesdall pulled his major use permit for Schwaesdall Winery, listening to him describe how miserable and expensive it was, what a dreadful experience. And it was — but it cost him something like $6000. Now, because of environmental restrictions and all the other tariffs, it's more like one or two hundred thousand — and two years and there's no certainty that the permit will be granted at the end of the process."

"There's a Cider/U-Pick farm stand out t on 78, and the owner is looking to expand into another commodity. I think he's already blasted through $200,000. He's told members of our group that the permitting process is a nightmare, because they won't give you a definitive list of things you have to complete before you can get your permit. You go back to them with your completed list, and they add on another half-dozen issues. You never know where the process ends." Or, in some cases, how it ought to begin. "He was told he had to have a traffic study. So, he hired a traffic engineer and got a traffic study. Then they said, 'Oh, no, that traffic engineer is not good enough; you have to have somebody else.' So he hires another and has another study done — I think he spent over $100K just on traffic studies. They looked at it and said, 'Fine — no changes required.'"

For him, it's a nightmare; for most, it's an impossibility. "It's become prohibitive for any small family business." And nearly all of the Ramona wineries are just that. "They have this passion that gets them through, and they hand-to-mouth it. They develop their project as the cash allows." But when you're a startup winery in a startup region, "as cash allows" doesn't generally include $200K for a permit.

The Vineyard Association, together with its associated Winery Association, decided that action was called for, and they turned to Harris, who works as a corporate attorney, to spearhead the effort. She, together with a team of volunteers from three local wineries, started talking to San Diego wineries that had managed to pull major use permits — places like Menghini and Shadow Mountain and J. Jenkins. Then the team started looking at other counties with developing wine regions, places like Mendocino, El Dorado, Amador. What they found: "They're just bending over backwards, because they know it's nothing but good for them. They have either not put up or they are removing huge barriers. Some of them have direct retail sales for a winery as a right of zoning" — a right that includes a tasting room.